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Population Growth Makes South Texas Attractive to Retailers

San Antonio
[gn_note color=”#ff3333″] The 2011 South Texas Profile originally ran in the June 2011 edition of The Shelby Report of the Southwest. Due to reader requests we will be posting our Profiles from each edition of The Shelby Report. The profile will be published on theshelbyreport.com one month after it has run in print.[/gn_note]

by Terrie Ellerbee/associate editor

South Texas is a pretty good place to be in 2011. There is affordable housing, no state income tax and a moderate climate. The state has the fastest growing population in the nation.

The San Antonio area is growing in population, too, and in fact, thanks to the 2010 Census, gained a new city in its metropolitan statistical area (MSA). An MSA is defined as a geographic region sharing social and economic ties. The federal Office of Management and Budget added New Braunfels to The Alamo City’s MSA.

The new San Antonio-New Braunfels MSA includes eight counties—Bexar, Comal, Guadalupe, Wilson, Atascosa, Bandera, Kendall and Medina—where before the

San Antonio MSA encompassed only the first four of those counties.

The population in those eight counties has grown to 2.14 million, according to data compiled by the San Antonio Express-News. In the year 2000, the eight counties had a combined population of 1.71 million.

San Antonio-New Braunfels is the 26th largest MSA in the U.S. and the third biggest in The Lone Star State behind Dallas-Fort Worth Arlington and Houston-Sugar Land-Baytown.

With its population growing and the employment outlook improving, South Texas continues to buck the nationwide trend of stagnation. Job growth for the San Antonio region is predicted to be above average in 2011, which could translate to as many as 27,000 new jobs in the area. Sectors expected to grow include military, government and manufacturing, as well as insurance, finance and call-center operations.

The March unemployment rate for The Alamo City was 7.3 percent, which is just a slight decline from its February rate (7.4 percent), but a move in the right direction nonetheless.

Texas does not escape budget woes

Texas is not immune to the budget and deficit issues at the center of hot debate in state legislatures across the country. Texas has a biennial state budget, meaning it is implemented for two-year durations, and is now in the second year of its 2010-11 budget. It also is working on its next, 2012-13, budget.

Conservative lawmakers have been loath to draw from the reserve fund to balance the state’s current two-year (2010-11) budget deficit of about $4 billion. But a Senate committee approved a plan (already passed in the House) to use more than $3 billion from the rainy day fund to close the gap in the current year, which ends Aug. 31.

The state’s tax revenue has declined because of the recession and resulted in a shortfall totaling billions of dollars (some media have reported the gap to be as much as $27 billion) for the next two-year budget.

In a rare move, Republicans in the Texas Senate skipped over what has traditionally been a two-thirds majority vote and passed their own version of a state budget—House Bill 1 (HB1)—along party lines. As The Shelby Report was going to press, the Texas Senate passed a $176.5 budget for 2012-13. The Senate version cuts $11 billion in state spending and does not raise taxes. It will go to committee to be reconciled with a $164.5 billion budget previously passed by the House. The House version cuts spending by $23 billion.

Texas has the luxury of a $9.4 billion rainy day fund. Gov. Rick Perry opposes tapping into the fund to supplement the current or upcoming budget, but has not said he would veto a budget with that included in it, according to Bloomberg Businessweek.

If the disputes do not come to definite conclusions by May 31, the last day of the legislative session, lawmakers may be called back this summer to finish the work.

H-E-B continues to grow

H-E-B was born in the Texas Hill Country, which spreads from San Antonio’s northern suburbs toward Austin. It got its start when Florence Butt invested $60 in a Kerrville store.

Florence’s son, Howard, took over in the 1920s, and in the 1940s the retailer now known as H-E-B opened three stores in San Antonio. Since the 1980s, the company’s corporate headquarters have been south of downtown San Antonio, with its campus on the San Antonio River.

Over its years—106 of them—H-E-B has grown in scope, sales and influence, but its operations remain close to its roots. H-E-B now has more than 290 stores in Texas and 40 more in Mexico.

Its banners include the traditional H-E-B supermarket; H-E-B Plus!, which offers more general merchandise in addition to a full line of groceries; the upscale Central Market; two limited assortment discount format Joe V’s Smart Shop in Houston; and a unique Mi Tienda store, also in Houston. Stores south of the border operate under the traditional H-E-B banner and a Mi Tienda banner that differs from the one in Texas.

“When the markets slowed down a couple of years ago, we wanted to make sure that we showed how much we care about Texas,” Craig Boyan, president and COO of San Antonio-based H-E-B, told The Shelby Report. “We’re different than all the other retailers in that we’re a $16 billion company, but our sales are all in the part of one state plus northern Mexico. We’re very focused geographically.”

H-E-B is also figuratively focused on Texas.

“We’ve significantly ramped up our investment in Texas over the last few years as our way to continue to stimulate the economy here in Texas,” Boyan said. “As one of the largest private companies, we felt it was incumbent on us to invest in Texas, to help be part of the revitalization of the Texas economy.”

While Texas overall has fared better than other states during the recession and recovery, unemployment continues to be a drain. Joblessness is high from a historical perspective statewide, and it has increased significantly in some areas.

In Texas the jobless rate was below 5 percent from August 2006 to July 2008. The rate in March was 8.1 percent, down from a recent peak of 8.3 percent reached last November (2010). In November 2008, it was 5.7 percent. Some South Texas communities have been particularly hard hit.

“Unemployment has doubled in Texas,” Boyan said. “Some counties that we serve are some of the lowest-income counties in the country with some of the highest unemployment rates in the country. So while Texas is better (off) as a state (compared to other states), certain regions and certain counties are really struggling.”

The Brownsville-Harlingen (Cameron County) unemployment rate in March was 12 percent, its highest level since 2001, while the March jobless rate was 11.9 percent in McAllen-Edinburg-Mission (Hidalgo County), where unemployment appears to be declining a bit after reaching a recent peak of 12.8 percent January. Both are highly populated areas in the Rio Grande Valley.

When media refer to Texas faring better than other states when it comes to employment, that likely refers to the nearly quarter-million jobs the state added from March 2010 to March 2011. Those numbers certainly are positive, which is good, but they are not big enough to move the jobless rate down significantly.

Looking ahead, fiscal issues on the state and federal levels will likely continue to pressure employment, which means continued tough times for consumers.

“Our outlook is that, based on what we hear from economists and our own observations, that’s not likely to change by a whole lot any time soon,” said Martin Otto, chief merchant and CFO for H-E-B.

H-E-B brought about 5,000 new jobs to Texas last year, as it opened 18 stores. The company will bring new jobs to Texas again this year with 20 new stores planned for South and Central Texas (including one in Mexico).

H-E-B opened several stores in the San Antonio area last year. On June 10, it opened a 63,000-s.f. store in La Vernia. On July 30, a second H-E-B opened in New Braunfels. A new 68,000-s.f. H-E-B store opened in Dripping Springs on July 23. On Sept. 10, a 117,000-s.f. H-E-B Plus! Store opened in the Westlakes Mall Shopping Center to replace an older store.

H-E-B also refreshed about 10 stores in the San Antonio area over the past year or so.

Save-A-Lot looks for Texas-sized growth, will offer new ‘Save-A-Lot Today’ private label products

Save-A-Lot likes what it sees in Texas. It is looking to open 50 to 100 locations over the next five years in The Lone Star State.

Save-A-Lot, a banner of Minneapolis-based Supervalu Inc., recently teamed with Rafael Ortega, a grocer with 25 years of experience in serving the Hispanic community in South Texas to open Save-A-Lot/El Ahorro stores.

The phenomenal population growth in Texas is due in part to migration, and the state is now “Majority-Minority,” meaning that the racial composition is less than 50 percent white. The Save-A-Lot/El Ahorro stores are designed to appeal to the Hispanic population. A half-dozen of the co-branded stores have opened and more are on the way this year, Mike Stout, director, new business development for Save-A-Lot Food Stores, told The Shelby Report.

“We are also in discussions with several independent retailers that have interest in developing multiple Save-A-Lot locations,” Stout said. Stout is responsible for new store growth and the recruitment of licensees like Ortega. Independent licensed retailers own and operate about 70 percent of Save-A-Lot’s 1,300 limited assortment discount stores. It seeks to have as many as 2,400 locations across the country by 2015. Save-A-Lot will open 160 stores across the country this year.

“To encourage new store development, Save-A-Lot has a new incentive program for 2011 designed to help retailers interested in opening new stores,” Stout said. “With our Licensed Store Incentive Program, all new and converted licensed stores will receive an incentive of at least $200,000 in cash back or for equipment purchases.”

Stout also said that first-time Save-A-Lot licensees also receive support services like basic accounting services and IT host support at no cost for the first year of store operation.

“In Texas, we are in discussions with several groups that have interest in developing Save-A-Lot stores,” Stout said. “We have plans for additional licensed and corporate stores in Texas in 2011.”

Save-A-Lot is courting customers, too, Stout said, “with a new line of smaller packages at even lower prices.”

“This opening price point program will include approximately 60 new SKUs and will be sold under a newly-developed label called Save-A-Lot Today,” he said. “As an example, our corn flakes cereal is a great value at $1.79 to $1.99. The new corn flakes cereal package will be slightly smaller and sold at a shockingly low price of $.99. We believe this program will be a huge success and provide our customers even more value.”

As it brings more stores to South Texas, they will mimic stores already located in Houston. Save-A-Lot stores there feature expanded produce and bakery selections and a meat service counter.

“This is something that you will not traditionally find in Save-A-Lot locations in other areas of the U.S.,” Stout said. “Our stores are tailored to meet the neighborhood’s needs.”

The Texas economy continues to outperform that of the U.S., but not all of its residents have fared well.

“Although Texas has performed well during the U.S. economic recession, according to a Wall Street Journal article, nearly 4 million Texas residents are using food stamps,” Stout said. “That is more than 15 percent of the state’s population. Since last year, food stamp.

The target Save-A-Lot consumer makes an average of $45,000 or less annually.

Stout is proud that Save-A-Lot was recently featured on “Good Morning America” (on ABC) and “The Early Show” (CBS) for its majority discount/limited assortment chains. The segments compared Save-A-Lot prices to traditional store brands.

“It was amazing to see the price advantages we had over the competition,” Stout said. “Consumers are beginning to see the difference and at time when typical grocery store revenues are flat, those of the discounters are steadily growing.”

Lowe’s acquires Super S chain

Pay and Save Inc., doing business as Lowe’s, bought Super S Foods, which operated more than 50 stores in small towns mostly in Central and South Texas. The acquisition was finalized March 23.

The Super S chain included a former Hild Brothers Foodland in Marion that Super S bought late last year. The acquisition brings Lowe’s store count to 146 stores, most of them located in Texas. Lowe’s employs about 3,300 people, whom it refers to them as teammates. All were to be retained at the acquired locations, the Seguin Gazette Enterprise reports.

Walmart gives Texas its own division

Last year, Wal-Mart Stores Inc. made the announcement that Texas would be its own division inside the retail giant’s corporate structure. Jeff McCallister is the SVP over Texas. Wal-Mart also put in place four regional heads, one each for Austin, Dallas, Houston and El Paso. Wal-Mart Stores Inc. currently operates 307 supercenter stores, 37 discount stores, 33 Neighborhood Market stores, 73 Sam’s Club stores and 16 distributions in Texas.

Around the San Antonio area over the past year, Walmart remodeled stores in Giddings, Cypress, Austin and Marble Falls, among others.

Trader Joe’s to enter Lone Star State?

As The Shelby Report was going to press, several major newspapers in Texas were reporting that California-based Trader Joe’s is looking for sites to make its entry in Texas. Articles mention Austin, Dallas-Fort Worth and Houston generally, but few specifics have been confirmed.

The Dallas Morning News reports that Trader Joe’s will open its first Texas store in Dallas.

Grocery Supply joins Topco

In South Texas wholesaler news over the past year, The Grocers Supply Co. Inc. became a member of Topco Associates. The Grocers Supply Co. will participate in Topco’s dairy/bakery, grocery, health & beauty care/general merchandise, pharmacy, processed meat, produce/floral, fresh meat and not-for-resale programs.

Founded in 1923, The Grocers Supply Co. is based in Houston and is a family-owned, full-service grocery wholesaler. It services more than 650 grocery stores and 1,200 convenience stores in a 350-mile radius from its Houston headquarters and has annual sales in excess of $3 billion.

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Point Loma Community
Huntington Beach, California
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